A Consultant's View
Prairie Trail Software, Inc. ............................................................. Oct 2007
How do you decide about innovation? One way is to ask the question, "Will this help our customers?" Innovation which helps your customers may mean incremental changes or it may mean "betting the company". In most cases, incremental changes are the most sensible, and sometimes that is all that a company can afford to bet. However, there are times when the market calls for a much larger leap.
In the world of computers, the most famous "bet the company" choice is, arguably, IBM's decision to build a set of computers that all ran the same software and used the same peripherals. The System 360 was a huge success but building it was a major decision. IBM had to stop development on several other systems and invest $5 billion dollars (more than twice IBM's annual revenue at the time) into this new system.
Why did they take such a risk? IBM had reached a place where the old ways of deciding what to build were not working any more. Formerly, IBM designed systems specifically for each customer or application. This was producing a customer and maintenance nightmare. IBM had eight different product lines that were totally different (including the printers and consoles), and IBM's customers had no way to grow their systems.
While most newspaper articles of the time focused on the tremendous management changes, IBM decided to view the world, first and foremost, from the perspective of their customers. Their customers were unhappy that they could not upgrade machines when they ran out of capacity. By making their customers happy, IBM had the chance to reinvent the computer business --and they did.
The internal costs of innovation is often overlooked but it can be huge. For example, when one car company offers millions of combinations of features in their automobiles, then that company has a major internal cost disadvantage over a another company that limits options.
The internal costs are why many of the first companies in a field can't continue when the field changes. They can't handle starting over while keeping their current customers happy. Similarly, a company that started developing on Linux has a hard time migrating to Windows and vice versa.
Companies need to be conservative about change. Change has to be done for good reasons, and for reasons which preserve the investment that customers have made in the company. IBM "bet the company" when they saw that by simply continuing as they had, they would have lost more than if they made the major gamble.
Innovation has been a major focus of business articles for a while. After experiencing the push to innovate, some companies, and consultants, are pushing back. The people who have focused on process improvements, like Six Sigma, correctly point out that "innovation" is not a cure all. In fact, in the wrong area or at the wrong time, innovation can destroy a company.
In the Harvard Business Review, Christian Stadler points out differences in the understanding of innovation between companies. In one example, he compares Erickson and Nokia. Ten years ago, Erickson had a large research facility just down the road in Richardson, Texas. Erickson was constantly researching new technologies for cellular phones. Nokia, on the other hand, focused on improving their processes. Today, Nokia is still in the cell phone business while Erickson's big research facility is being used by a different company in a totally different business.
Innovation in the wrong area is a common problem. Those in charge of companies that started with a technical focus continue to think that technical innovation is the way to keep going. But the type of innovation a company needs can change over time. Sometimes a company needs innovation in marketing, sometimes in process control, sometimes they need to reinvent the product, and sometimes they need to redo the corporate structure. Knowing when and where to innovate is a major challenge for management
Both innovation and the lack of innovation can kill a company. Knowing when to invest is a challenge. It helps to have advice and to have a good view of where the market is going.
--If you need some help, give us a call.
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Dave Randolph,
President, Prairie Trail Software